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New report: Vermont’s tax system is among the least regressive

October 17, 2018


New report: Vermont’s tax system is among the least regressive


MONTPELIER— Tax systems generally favor the wealthy, but Vermont’s system is skewed less than most other states when it comes to high-income taxpayers. That was the key finding of a study released today by the Institute on Taxation and Economic Policy (ITEP) and Public Assets Institute.

Taxes are considered regressive if lower-income taxpayers pay at higher rates than do taxpayers with higher incomes. According to the new report, Vermont taxpayers in the top 1 percent now pay a slightly higher share of their income in state and local taxes than those in the middle. However, some upper-income taxpayers pay a lower percentage than Vermonters in the middle. The lowest-income taxpayers pay the smallest share of their income in state and local taxes, according to the report.

The study, Who Pays? A Distributional Analysis of the Tax Systems in All 50 States, analyzes all major state and local taxes, including personal and corporate income taxes, property taxes, and sales and other excise taxes. Vermont’s tax system ranked 49th on the study’s Tax Inequality Index—number 1, Washington, being the state with the most inequality. In New England, Vermont had the best rating on the index, and New Hampshire had the worst.

“This is very good news for Vermont,” said Public Assets President Paul Cillo. “The Legislature has improved the tax system over the past several years and it shows.” The Legislature decoupled Vermont from the federal income tax changes enacted last year, which favor corporations and the wealthiest Americans; it eliminated itemized deductions and increased the earned income tax credit for the lowest-income working Vermonters. These actions have made the tax system less regressive.

But the system could be much fairer, noted Cillo: “The wealthiest Vermonters have benefited most from our growing economy and substantial new federal tax breaks. It’s reasonable to ask the highest-income residents and corporations to pay their fair share of state and local taxes.”

Anti-tax advocates across the country and in Vermont continue to push for policies that reduce tax rates for the wealthy and businesses. But a movement is growing in opposition to this agenda, as the public realizes that tax cuts for the wealthy and corporations mean less money to fund the things that benefit everyone: schools, parks and public spaces, infrastructure, public safety, and other basic services.

There’s another important reason to be concerned about regressive tax structures: They exacerbate the growing income divide. “Rising income inequality is unconscionable, and it is certainly a problem that local, state, and federal lawmakers need to address,” said Meg Wiehe, deputy director of ITEP and an author of the study. “State lawmakers have control over how their tax systems are structured. They can and should enact more equitable tax policies that raise adequate revenue in a fair, sustainable way.”

Vermont specific data

Full report

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The Institute on Taxation and Economic Policy (ITEP) is a 501 (c) (3) non-profit, non-partisan research organization that works on federal, state, and local tax policy issues. ITEP’s mission is to ensure that elected officials, the media, and the general public have access to accurate, timely, and straightforward information that allows them to understand the effects of current and proposed tax policies.

Public Assets Institute is a nonprofit, nonpartisan organization that promotes sound state budget and tax policies that benefit all Vermonters. More information at